Dividend

A dividend is the portion of a company's profits distributed to its shareholders in proportion to their paid-up shareholding. Under Section 2(35) of the Companies Act, 2013 the term expressly includes an interim dividend. A final dividend is recommended by the Board and approved by members through an ordinary resolution at the Annual General Meeting (AGM), while an interim dividend is declared by the Board itself during a financial year. It is generally paid in cash to shareholders registered on the record date.

Legal basis

Section 123 requires that dividend be paid only out of current-year profits (after providing for depreciation), out of accumulated past profits, or out of money provided by government for this purpose. Transferring a share of profits to reserves is at the Board's discretion — the earlier mandatory transfer to reserves was removed under the 2013 Act, so any transfer to a reserve is voluntary. The Companies (Declaration and Payment of Dividend) Rules, 2014 govern declaration out of free reserves when profits are inadequate.

Payment and unclaimed amounts

• Under Section 127, the dividend must be paid, or the warrant dispatched, within 30 days of declaration; default attracts interest and penalties.
• Section 124 requires any unpaid or unclaimed dividend to be moved to a separate Unpaid Dividend Account within 7 days after the 30-day window.
• Under Section 125, dividend (and the underlying shares) unclaimed for 7 consecutive years is transferred to the Investor Education and Protection Fund (IEPF).

Taxation

Dividend Distribution Tax (DDT) was abolished by the Finance Act, 2020, so dividend is now taxable in the shareholder's hands at their applicable slab rate. The paying company deducts TDS under Section 194 at 10% where dividend to a resident exceeds Rs 10,000 in a financial year (threshold raised from Rs 5,000 with effect from 1 April 2025).